Canadian Dollar Leaps as BOC Paves Way for More Interest Rate Hikes

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  • Lack of Domestic Data Limits Australian Dollar Exchange Rates – ‘Aussie’ remains at the mercy of wider market developments
  • Pound Slides as Markets Fret Over Lack of Support for Theresa May’s Brexit Plans – Threat of a leadership challenge continues to hang over UK outlook
  • Canadian Dollar Surges After Hawkish BOC Interest Rate Hike – Policymakers signal intent to raise rates further
  • Narrowed Trade Deficit Could Boost NZD Demand – Rising export volumes to encourage greater domestic confidence

Australian Dollar Continues to Lack Support

In the absence of any fresh domestic data there was little reason to favour the Australian Dollar yesterday. The persistent sense of market risk aversion kept AUD exchange rates under pressure, meanwhile, as worries over the global growth outlook and geopolitical tensions lingered. While the Trump administration launched another attack on the Federal Reserve’s monetary policy this failed to give the Australian Dollar any particular traction.

Even so, if US data proves weak this could give AUD exchange rates a boost overnight.

Political Tensions Keep Pound Under Pressure

Confidence in the Pound diminished once again as domestic politics continued to weigh on the minds of investors. Reports that Theresa May failed to rally her cabinet around the details of the potential Brexit agreement saw GBP exchange rates slump sharply. As anticipation mounted ahead of May’s meeting with the Conservative 1922 committee, with MPs having already expressed anger with the prime minister, there was little reason to buy into the Pound overnight.

If the odds of a no-deal Brexit or a leadership challenge against May are seen to increase further this is likely to keep GBP exchange rates on the back foot.

Disappointing Eurozone PMIs Limit Euro Appeal

October’s round of Eurozone manufacturing and services PMIs failed to offer any encouragement to the Euro. Investors were disappointed to find that both sectors had posted weaker expansion than forecast, suggesting that the Eurozone economy had a weaker start to the fourth quarter. With the currency union having already lost economic momentum over the course of the year this latest sign of easing growth prompted EUR exchange rates to trend lower across the board.

A rallying point could be in store for the single currency, however, if the European Central Bank (ECB) sounds a more optimistic note at its October policy meeting.

New Home Sales Contraction Fails to Drag US Dollar Down

Another sharp decline in US new home sales on the month in September failed to weaken USD exchange rates last night. Even though the domestic housing market continues to show signs of a significant slowdown this weakness can largely be attributed to adverse weather conditions, rather than underlying factors. As a result, the US Dollar remained on a stronger footing against its rivals, capitalising on solid US manufacturing and services PMIs.

However, fresh weakness could be in store for USD exchange rates tonight if durable goods orders show a sharp contraction as forecast.

Prospect of More BOC Rate Hikes Boosts Canadian Dollar

A hawkish message from the Bank of Canada (BOC) saw the Canadian Dollar pushing higher overnight. While the 25bpt interest rate hike was largely anticipated investors took heart from the fact that policymakers had dropped to word ‘gradual’ from its description of the pace of future rate hikes. This suggests that the BOC is likely to continue its tightening cycle in the months ahead, boosting the appeal of the Canadian Dollar.

CAD exchange rates may struggle to hold onto this sense of bullishness for long, however, as the initial impact of the meeting fades.

New Zealand Dollar Muted Ahead of Trade Data

Demand for the New Zealand Dollar remained generally limited yesterday, with markets bracing for this morning’s New Zealand trade data. With investors still in a generally risk averse mood and the US Dollar on a solid footing there was little potential for ‘Kiwi’ strength. As the BOC raised interest rates once again this also fuelled concerns over the Reserve Bank of New Zealand’s (RBNZ) increasing divergence from global monetary policy trends.

If September’s trade deficit narrows as expected on the month, though, this should give policymakers greater cause for confidence in the domestic outlook.

Data Released

Oct 25th 08:45    NZD    Trade Balance (SEP)    -1365 million
Oct 25th 22:45    EUR    European Central Bank Rate Decision    0.00%
Oct 25th 23:30    USD    Durable Goods Orders (SEP)    -1.5%

Post by TorFX

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